With multifamily construction booming and homebuilding on the mend, drywall and other materials used in residential construction are getting more expensive — and some experts don’t expect prices to level out anytime soon.

Builders see rising material costs

Construction workers brave the cold at the Dock Street Apartments site, at Washington Avenue North at Third Avenue North. Construction materials costs in general rose a modest 1.3 percent from December 2011 to December 2012, according to an Associated General Contractors analysis. (File photo: Bill Klotz)

As residential construction rises, so do material costs.

With multifamily construction booming and homebuilding on the mend, drywall and other materials used in residential construction are getting more expensive — and some experts don’t expect prices to level out anytime soon.

Construction materials costs in general rose a modest 1.3 percent from December 2011 to December 2012, according to an Associated General Contractors analysis of the federal producer price index for construction inputs.

Jeff Schoenwetter, owner of Hopkins-based JMS Custom Homes, has seen three price increases over the past year. Increases ranged from 8 percent to 16 percent for “sheet” products, including drywall, he said. Schoenwetter said he expects similar increases in the next 12 months.

“The truth is, the industry is passing those costs on to the consumer,” he said.

K.C. Chermak, president of Pillar Homes in Plymouth, said he’s definitely seeing cost pressures for some materials. That may translate to bid increases of “$750 here and $500 there” for certain products, all of which “adds up,” he said. But the increases are driven in part by more demand, which is a good thing, he added.

“It tells me that everything is starting to ramp up a little bit,” Chermak said.

With increased production and more imports, prices may start to level off later in the year, but “that might take several months,” according to Ken Simonson, AGC’s chief economist.

Many gypsum plants and lumber mills shut down or slowed production when housing construction dropped off, Simonson noted.

Nationwide, multifamily construction is now up 40 percent and single-family is up 25 percent, Simonson said. Improvements for homes and offices also are up. “So it’s not surprising both gypsum and lumber prices have risen sharply,” he said.

The National Association of Home Builders estimates that drywall, including labor, accounts for about 5.1 percent of the construction cost of building a new home, which is roughly $11,332 for a $377,624 house (with a construction cost of $222,511).

In some parts of the country, where demand for existing homes is strong, builders should be able to pass on the higher material costs to buyers. But in areas where there’s still an ample supply of existing homes, builders “will have to be quite careful” about how they price their homes, Simonson said.

Minnesota homebuilders pulled permits for roughly twice as many housing units in 2012 (8,963) as they did in 2011 (4,500), according to the Keystone Report, which tracks homebuilding permits in the 13-county area.

The momentum has carried over into 2013. The first two weeks of the year produced 256 permits for 648 new housings units, up from 106 and 203 in the same period last year, according to Keystone.

“We are in a good position,” said Shawn Nelson, president of New Spaces, a Burnsville-based residential remodeling business. “We are going to grow. But we are not going to grow crazy fast.”

Nelson and other homebuilders have been bracing for higher costs since at least fall 2011, when suppliers of gypsum products said they intended to raise prices after Jan. 1, 2012.

But the market has improved considerably since fall 2011. More homes are being built and home prices are starting to rise again, so builders are “able to sell their homes at price points that make sense for them now,” Nelson said.

Schoenwetter, of JMS, said his company has locked in some of the current prices, “which will help us be a little more competitive throughout the year.” Still, he urges consumers to buy “sooner than later, because nobody wants to pay more than they have to.”